Yes, air dried works better with hand tools and tears out less! And so long as it is properly dry you will be fine.
My experience is that air dried comes into the workshop at maybe 15%, but if the workshop is warm and dry, and you leave it to acclimatise in there first, it will go as dry as you want — 8% no problem. Given that I don't see a problem with using it for furniture. It's not like the 8% that the kiln dried arrives at is somehow fixed — leave it outside in a less than dry shed or workshop and it will soon be at 15-20% and you will then get all the problems you might expect with air dried if you make something with it in that state and put it into a centrally heated house. I'd say it's about making things using timber at a sensible moisture content, whether air dried or kiln dried.
I think that kilned timber does move a little less, it is affected somewhat by the drying process, but it still moves plenty with big humidity swings. And air dried is SO much nicer to work with a plane, and you get less tear out generally.
I don't believe that air dried is especially susceptible to woodworm or needs to be treated before indoor use, so long as it is brought down to a sensible moisture content first. I've used air dried on loads of pieces of furniture and never had a problem or complaints, but I do make sure it's dried properly in the workshop before I use it.
I'm always surprised at the elm comments; I've used air dried elm several times and never had any movement problems at all. It does tend to deform a lot when it is being dried from green, so the boards can be a bit wonky when you get them, but once it is dry I've never experienced it moving excessively in normal use. In fact I have a table top made from really wild elm that I made years ago when I was learning; it's in an outdoor timber store, open on one side and has been for a couple of years and it's as flat as the day I made it.
Anyway, sorry to be contrary, but that's my two cents!